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This post was edited by abramicus at 2015-7-9 15:15|
Finally, China succeeded in stabilizing the Shanghai stock market whose composite index rose and plateaued at 6% above yesterday's close, and the Shenzhen stock market, whose index also rose and plateaued at 4% above yesterday's close.
It is good that the rescue did not go overboard with ramping up the gains to double digits in a day, because the lessn of the past is that such rises in stock prices can only be sustained by a public buying up the shares without use of margin loans, and without government intervention.
It is time to realize that the previous attempt to inflate share prices in the past 9 months, in preparation for liberalizing capital accounts that allows foreigner to buy mainland shares, created more problems than the number of problems it purported to solve. The main problem is that such stratospheric prices cannot be sustained by the retail public. Like the major bourses of the world, such prices can only be sustained by algorithmic trading backed by liquidity that exceeds the volume of transactions in the stock market by a factor of 2 at the least. Once tamed, the stock market is no longer as attractive as it once appeared to the inexperienced hand.
It is time to drop these juvenile adventures that do not create real wealth, any more than two people determined to buy and sell to each other can keep ratcheting up the price of any asset, until it is worth more than all the wealth in the world, except that such asset valuations are impossible to replicate in a public auction.
It is time for the CHINA DREAM to focus on the reality that production must always precede and surpass consumption under any model of the economy, and that the job of the state is ensure that production is profitable, first of all, which means that the overvalued exchange rate of the Yuan must come down to 6.50 Yuan/Dollar as soon as possible, to get the factories producing, the workers working, and the working middle class going back to the real estate market to buy homes for their families, all over again, and once had happened all over China, and made her standard of living something to be admired.